USD: Trade powers tested, risk premium rebuilt

The week opens with US trade policy back in focus after the Supreme Court curtailed the administration’s use of emergency powers under IEEPA, a mechanism that had generated roughly $133bn in tariff revenue. The ruling removes a rapid channel for broad trade action.

President Donald Trump responded by invoking Section 122 of the 1974 Trade Act, imposing a 10% universal tariff, later raised to 15% by executive order. These measures sit outside the Court’s decision but lapse after 150 days without Congressional approval. The White House appears determined to pursue its protectionist agenda through alternative legal routes.

For markets, the key question is whether Congress entrenches higher tariffs in law. If so, retaliation risks rise. If not, durability becomes questionable. Even then, the overall tariff burden may settle below earlier peaks, limiting the implications for growth, inflation and the Federal Reserve’s policy outlook.

In FX, the dollar is softer against most majors as trade uncertainty diverts flows towards havens and the euro. Investors are rebuilding a modest risk premium on US assets. Geopolitical tensions with Iran add tail risk, particularly via oil and the Strait of Hormuz, though history suggests Washington tends to recalibrate if market stress intensifies.

GBP: Politics and policy in focus

Sterling drew brief support from stronger PMIs and retail sales, pointing to firmer early-year momentum. However, softer inflation and labour market data reinforced a more dovish tone from the Bank of England, weighing on the currency overall.

Attention now shifts to domestic politics. A forthcoming by-election carries greater significance than usual given scrutiny of Prime Minister Keir Starmer. A poor result would heighten pressure ahead of May’s regional elections and could inject fresh volatility into sterling.

Technically, GBP/USD support at 1.3350 is pivotal, while GBP/EUR remains vulnerable near 1.1363 (0.88p). Firmer activity data and sticky price pressures may limit the scale of rate cuts, but political uncertainty is likely to dominate near-term direction.

EUR: Relative resilience

The US–EU trade outlook remains uncertain. The European Parliament has paused approval of certain commitments following tensions linked to Greenland, raising the prospect of renewed negotiations. Washington may instead lean on targeted tariffs.

Despite this, the euro retains underlying support. EUR/USD pullbacks have been shallow in recent months, and positioning suggests softer demand for the dollar. German data, including the February Ifo survey, will be watched for signs that fiscal spending is feeding into industrial activity.

EUR/USD may edge towards the 1.1850–1.1880 area, though a sustained move above 1.1900 looks premature given geopolitical risks.

Looking ahead

• US Congressional response to new tariff measures

• Developments in US–Iran tensions and oil prices

• Outcome of the UK by-election and leadership implications

• German Ifo survey and broader eurozone sentiment

• Key technical levels: 1.3350 in GBP/USD, 1.1363 in GBP/EUR, 1.1900 in EUR/USD